U.S. factory activity edges up; momentum remains weak
| Reuters

WASHINGTON U.S. manufacturing activity appeared to stabilize a bit in January, but a recovery is unlikely in the near term as factories grapple with a strong dollar and lower oil prices force energy firms to further cut spending.

Other data on Monday showed consumer spending was flat in December as households reduced their purchases of automobiles and unseasonably mild weather hurt heating demand. However, a jump in savings to a three-year high suggested consumption could rebound in the months ahead.

The Institute for Supply Management said its index of national factory activity increased 0.2 percentage point to a reading of 48.2 last month, the fourth straight month of contraction.

A reading below 50 indicates a contraction in manufacturing. However, the index remains above the 43.1 threshold which is associated with a recession.

The buoyant dollar has combined with tepid global demand to undermine U.S. exports. At the same time, businesses are working to reduce a huge pile of unsold merchandise clogging warehouses, which has left little scope to place new orders with factories. Manufacturing accounts for 12 percent of the economy.

In a separate report, the Commerce Department said consumer spending was unchanged in December after an upwardly revised 0.5 percent increase in November. Spending on long-lasting manufactured goods such as autos dropped 0.9 percent. Purchases of nondurable goods also declined 0.9 percent.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have increased 0.3 percent in November. Spending increased 3.4 percent in 2015 after advancing 4.2 percent in 2014.

That data was included in last Friday's fourth-quarter gross domestic product report, which showed consumer spending growth slowed to a 2.2 percent annual rate from the third quarter's brisk 3 percent pace.

But with the labor market strengthening and some of the impediments to growth largely seen as temporary, economists expect output to pick up in the first quarter of 2016. First-quarter growth estimates are for now mostly above a 2 percent rate.

U.S. stocks were trading lower and the dollar weakened against a basket of currencies. Prices for U.S. government debt also were lower.

ROBUST SAVINGS

In December, income rose 0.3 percent after a similar gain in November. Wages and salaries increased 0.2 percent after shooting up 0.5 percent in November. Income in 2015 was up 4.5 percent, the largest increase since 2012, after rising 4.4 percent in 2014.

Income at the disposal of households after accounting for inflation in 2015 recorded its biggest increase since 2006.

With income outpacing spending in December, savings surged to $753.3 billion, the highest level since December 2012, from $717.8 billion in November.

Higher savings and rising house prices should help to soften the blow to household wealth from a recent stock market sell-off and drive spending in early 2016.

With consumption soft, inflation retreated in December.

A price index for consumer spending slipped 0.1 percent after ticking up 0.1 percent in November. In the 12 months through December, the personal consumption expenditures (PCE) price index, however, rose 0.6 percent after increasing 0.4 percent in November.

That was the largest increase since December 2014. Year-over-year inflation rates are rising as the weak readings during the year drop out of the calculation.

Excluding food and energy, prices were unchanged after rising 0.2 percent in November. The so-called core PCE price index increased 1.4 percent in the 12 months through December after a similar gain in November.

Core PCE is the Federal Reserve's preferred inflation measure and remains well below the U.S. central bank's 2 percent target.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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